Hear out Cognizant before passing any orders: SC tells I-T

CHENNAI: The Supreme Court on Wednesday directed tax authorities to give IT services provider Cognizant India an opportunity to explain its position and pass a fresh order on a two-year-old tax dispute.

The case relates to repatriating money to the company’s parent entities in Mauritius and the US through a share repurchase programme in 2016. The top court also asked the I-T department to decide on the matter in two months, according to counsellors present in court. Cognizant did not answer an email on the implications of the court order.

Earlier, a three-judge bench of the SC said in a short order, “Leave granted… Pending applications, if any, shall also stand disposed of.”


In the SC, Cognizant argued that the share repurchase transaction should fall under the ambit of capital gains and not dividend distribution, according to a counsel present in court. In March 2018, Cognizant had appealed to the Madras HC against the department over its Rs 3,300 crore tax claim. In an interim order, the Court had directed Cognizant to deposit 15% of the amount, but later dismissed the petition, asking Cognizant to approach the income tax appellate authority. A division bench of the same court also upheld the order but set aside certain findings about the nature of Cognizant’s transaction.

The SC said on Wednesday that Cognizant’s fixed deposit receipts to the tune of Rs 2,806 crore and another Rs 495 crore deposit made in April 2018 will also be subject to decisions by the tax authorities. Cognizant CFO Karen Mcloughin had said recently that the company was analysing the implications of India abolishing the dividend distribution tax, the bone of contention in its dispute with the tax department. “We are currently analysing this proposal but believe it can, once enacted, significantly lower the cost of repatriating funds back to the US,” she told analysts in an earnings call.